Mark Twain is one of the greatest American authors. But not many people know he was also a venture capitalist.
A phenomenally bad one.
Twain lost the equivalent of nearly $10 million* in a single investment: the Paige Compositor. Invented by James Paige, it was one of the first typesetting machines.
The machine was a marvel, printing faster than anything else — when it worked. But with 18,000 moving parts, the Compositor was prone to breakdowns.
Paige worked on the machine for over two decades before releasing it. Twain repeatedly doubled down on his initial $5,000 investment during this time, putting in a total of $300,000.
In 1887, Paige finally put the Compositor on the market. By that time, its main competitor, Linotype, had already been on the market for 3 years.
Linotype was cheaper, simpler, and less prone to breakdowns. It soon ran away with the printing market.
Paige died penniless and Twain went bankrupt.
What can we learn from their mistakes?
Paige’s critical error was failing to get a Minimum Viable Product (MVP) to market as soon as possible.
This would’ve let Paige begin to learn what customers want and what competitors were capable of. He might have soon realized that customers didn’t like his machine because it was too expensive and unreliable.
Then, Paige could’ve simplified it, reducing breakdowns and cost. Paige and Twain just might have wound up with a huge success!
Instead, Paige kept tinkering endlessly, divorced from the lessons of the market.
Meanwhile, Twain should’ve never put so much money into a single company!
You never invest more than you can afford to lose in startups. And you must make many small bets to give yourself enough chance of hitting an outlier success.
If Twain wanted to invest in the Compositor, he should’ve placed a small bet and waited. If the company got to market and started selling lots of machines, he could place another small bet.
Investors doubling down on winners is what we call “milestone based funding.”
Companies get a little money to start. Then, if and only if they hit certain milestones, they get more.
It’s the fundamental principle of Silicon Valley, like F = ma in physics.
Today, we systematically avoid the mistakes Twain and Paige made.
We read The Lean Startup by Eric Ries and learn to launch as soon as possible. We read Angel by Jason Calacanis and learn to make many small bets instead of one big bet.
But let’s not judge Twain and Paige too harshly. After all, they never got to read those books.
The lessons of early entrepreneurs and investors taught us what we know today.
After his bankruptcy, Twain went on a world tour telling jokes and stories on stage. He traveled as far as India and made enough to pay off his debts.
Things were looking up for Twain. And then he heard about another revolutionary invention…
What lessons do you take from Twain and the Paige Compositor? Leave a comment at the bottom and let me know!
Have a great weekend everyone! 👋
More on tech:
Photo: Twain in Nikola Tesla’s lab
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